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Terror worries push oil price towards $64
Updated: 2005-08-09 19:52

Warnings of a possible terror attack in Saudi Arabia and worries over Iran's resumption of its nuclear programme on Monday helped push crude prices to nominal records, with analysts warning that the market could soon breach the $65 a barrel level.

Crude oil futures in New York soared close to $64 a barrel and US gasoline futures also reached new highs as an already tight oil market reacted to warnings from the US, Britain and Australia of possible terror attacks in Saudi Arabia, the world's biggest oil producer.

Britain warned of "credible reports" that terrorists were in the "final stages of planning attacks" in the kingdom, a warning that was echoed by the Australian government and came as the US closed its missions in Saudi Arabia, also citing a terror threat.

The futures market has been driven higher by one of the worst sequences of refinery outages in years. On Monday, Valero and ConocoPhillips each confirmed that they had suffered problems at refineries over the weekend.

Oil prices were further stoked as Iran resumed nuclear activities at a uranium conversion plant in Isfahan, a move which brings Tehran closer to the threat of United Nations sanctions.

The International Atomic Energy Agency will hold an emergency meeting of its board of governors today to discuss Iran's decision.

Oil traders are concerned that Iran's resumption of its nuclear program could prompt the EU to back US calls for sanctions against the second largest oil producer in the Organisation of the Petroleum Exporting Countries.

The latest refining outages heightened concerns that the system has been pushed too far for too long, especially in the US, and cannot keep pace with growing demand for oil products.

A sequence of accidents, combined with a lack of spare capacity, means that refineries could face difficulties meeting oil demand this winter. The International Energy Agency, the industrial countries' energy watchdog, has forecast that oil consumption will reach 85.9m barrels a day in the fourth quarter, up from 83.7m b/d.

"The profusion of recent snags in the US refining system suggests that, over time, the system is being pushed beyond its sustainable limits and, hence, that interruptions are becoming more likely," said Kevin Norrish, of Barclays Capital in London.

Global refinery utilisation rates have this year exceeded 95 per cent, up from 75 per cent two decades ago, as rising consumption has removed the slack in the system. No new refinery has been built in either the US or Europe in the last 30 years. "As a marathon runner at the end of a race is losing his strength, the refinery system is now suffering the same malaise," said Deborah White, of Soci¨¦t¨¦ G¨¦n¨¦rale in Paris.

US refinery utilisation rates have been above 90 per cent since March and last week were near 96 per cent, according to official data.

ExxonMobil, BP and Shell have also suffered outages in US and European refineries in the last weeks. Some of the snags have been recurrent in the same plant or have forced the closure of an entire refinery, rather than just one processing unit.

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